China Anxiety Saps Asian Stocks, Aussie Dollar Hit Hard

Asian stocks skidded to five-week lows on Monday, giving European markets a negative lead after a batch of weak data out of China raised the spectre of a sharp slowdown in the world’s second-biggest economy.

Financial spreadbetters are expecting falls of 0.3 percent to 0.7 percent at the open for major European bourses.

“As if traders didn’t have enough to contend with this week what with the Scottish referendum and the FOMC meeting, China has flapped their hands in the air to remind everyone that they are facing an abrupt slowdown,” Capital Spreads trader Jonathan Sudaria wrote in a note.

Data out on Saturday showed China’s factory output grew at the weakest pace in nearly six years in August, while growth in other key sectors also cooled.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slid 0.9 percent to levels last seen on Aug. 8. The index has fallen 4 percent in a little over a week, from a near seven-year peak.

Australia’s S&P/ASX 200 index .AXJO shed 0.8 percent, South Korea’s KOSPI .KS11 dipped 0.3 percent and Hong Kong’s Hang Seng .HSI fell 0.6 percent.

Oddly, mainland Chinese shares suffered only modest losses .CSI300 and the Shanghai Composite Index .SSEC even managed to edge up 0.2 percent.

“Equities in China have actually done reasonably well considering the situation and perhaps stimulus hopes are helping to put a floor on the losses,” said Stan Shamu, strategist at IG.

Tokyo’s Nikkei .N225 was spared the pain thanks to a public holiday in Japan. Normal trading will resume on Tuesday.

The bearish Chinese data has added to worries about a 40-percent slide in iron ore prices .IO62-CNI=SI this year and further soured sentiment for commodity currencies.

Not surprisingly, the Australian dollar was a notable underperformer, dipping below 90 U.S. cents AUD=D4 for the first time since March and extending a decline from 94 cents early this month.

The other major currencies were steadier with the U.S. dollar holding just below a six-year peak of 107.39 yen JPY= set on Friday. The euro was flat at $1.2960 EUR=, having last week slumped to a 14-month trough of $1.2859.

There has been strong demand for the greenback as investors positioned for a slightly more hawkish shift from the Federal Reserve this week at its Sept. 16-17 policy meeting.

This has driven U.S. Treasury yields higher, with the 10-year yield US10YT=RR last week scoring its biggest rise in over a year.

“The key question surrounding this week’s policy event is whether a widely expected change in FOMC forward guidance is sufficient to refuel USD buying,” Credit Agricole analysts wrote in a report.

“Having witnessed an already large shift in USD positioning…our answer is no. Indeed while we forecast USD strength to continue throughout Q4, USD demand appears to have gotten ahead of itself with longs (temporarily) over-extended.”

Sterling remained on tenterhooks just days from the Sept. 18 referendum on independence for Scotland, with polls showing the “Yes” and “No” camps pretty much running neck and neck.

A win for the “Yes” campaign could result in the end of the 307-year-old union with England and the break-up of the United Kingdom.

The pound was a touch softer at $1.6247 GBP=D4, remaining vulnerable after skidding to a near 10-month low of $1.6052 last week.

Broad U.S. dollar strength coupled with worries about demand knocked commodity prices lower.

U.S. crude CLc1 fell $1.08 to $91.19 a barrel, while copper CMCU3 shed 0.8 percent to $6,785 a tonne. Gold steadied at $1,232.90 an ounce XAU=, after briefly touching an eight-month low of $1,225.30.

Source : Reuters